- Galaxy Corp. prepares cash budgets considering foreign exchange effects. Domestic operations generate $400,000 monthly, while European operations contribute €250,000 monthly. The budget assumes €1 = $1.20, but the actual rate is €1 = $1.15. Monthly expenses are $675,000. Beginning cash is $150,000 with a $100,000 minimum balance. What is the monthly shortfall due to currency fluctuation?
Answer: $12,500 monthly shortfall due to unfavorable exchange rate movement
Budgeted European contribution: €250,000 × $1.20 = $300,000. Actual European contribution: €250,000 × $1.15 = $287,500. Currency shortfall: $300,000 - $287,500 = $12,500 per month. Total budgeted cash flow: $400,000 + $300,000 - $675,000 = $25,000 positive. Actual cash flow: $400,000 + $287,500 - $675,000 = $12,500 positive. The difference is exactly $12,500. Choice B adds transaction costs not mentioned. Choice C suggests compounding that doesn't apply to monthly calculations. Choice D overstates the currency impact beyond the actual rate difference.
- Titan Corp. operates with a cash conversion cycle of 75 days (40-day collection period, 50-day inventory period, 15-day payment period). Monthly sales are $600,000 with a 35% gross margin. The company wants to reduce its cash cycle to 65 days by improving collections to 30 days. If beginning cash is $180,000 and monthly fixed costs are $140,000, what is the one-time cash flow improvement from this change?
Answer: $200,000 one-time cash improvement including inventory effects
Daily sales = $600,000 ÷ 30 = $20,000. Reducing collection period from 40 to 30 days frees up 10 days × $20,000 = $200,000 in cash from accounts receivable. The inventory and payment periods remain unchanged, so the improvement is specifically from collections acceleration. Choice A underestimates the daily sales impact. Choice C includes unrelated cycle effects. Choice D overstates the improvement beyond the collection period change.
- Meridian Corp. has the following data for Q1: Beginning cash balance $45,000, sales collections of $180,000 (60% cash sales, 40% collected from prior period receivables), purchases paid of $95,000, operating expenses paid of $38,000, and equipment purchase of $25,000. If the company maintains a minimum cash balance of $30,000 and can borrow in increments of $5,000 at 8% annual interest, what is the ending cash balance after any necessary borrowing?
Answer: $67,000 with no borrowing required
Beginning cash $45,000 + Collections $180,000 - Purchases $95,000 - Operating expenses $38,000 - Equipment $25,000 = $67,000. Since $67,000 > $30,000 minimum, no borrowing is needed. Choice B incorrectly assumes borrowing is needed. Choice C confuses equipment purchase with expansion requiring additional borrowing. Choice D adds unnecessary borrowing beyond the minimum requirement.
